Part 6 -Fundamentals Aren’t Just Numbers: They’re the Keys to Winning the Stock Game
A Look at the Metrics That Drive Company Share Prices Up (or Down)
I’m Michael and the founder of TheValueVantage.com and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream. Take a look at the Return-Simulator on my website. How it all started.
Understanding beats gambling.
The Income Statement Part 2
Let's continue our understanding of fundamental metrics that help paint the complete financial picture of a company. Here's your next set of essential metrics to understand.
51. Gross Profit
Revenue minus the direct costs of producing goods or services. Why does this matter? It's your first glimpse at profitability, showing how much money is left after covering basic production costs. A healthy gross profit gives management room to “move” aka to invest in growth while maintaining profitability.
52. Weighted Average Shares
The basic version of total shares outstanding during a period. Why does this matter?This is the foundation for calculating earnings per share and understanding how widely spread ownership is. Unlike diluted shares, this gives you the current ownership picture without potential future dilution.
53. Preferred Dividends
The impact of dividends paid to preferred shareholders. Why does this matter? These payments come before common shareholders see a dime. Think of it as a "first in line" claim on profits that reduces what's available for regular stockholders.
54. Operating Expenses (OPEX)
All costs beyond production—combining SG&A, R&D, and other operational costs. Why does this matter? This tells you the cost of keeping the business running day-to-day. Rising OPEX without matching revenue growth is like a leak in your profit boat.
55. Earnings Before Tax (EBT)
Profit after all expenses but before paying taxes. Why does this matter? It shows profitability before government takes its share, letting you compare companies across different tax jurisdictions or tax situations.
56. Tax Expense
What the company owes in taxes. Why does this matter? Beyond the obvious impact on bottom-line profit, unusual tax rates might signal risk or opportunity—maybe tax credits boosting profit, or looming tax bills threatening future earnings.
57. Cost of Revenue
Direct costs of producing goods or services sold. Why does this matter? This shows how efficiently a company turns inputs into outputs. Rising costs here might signal supply chain issues or pricing pressure that could squeeze margins.
58. Net Income from Discontinued Operations
Profit or loss from business units being sold or shut down. Why does this matter? It helps you separate one-time effects from ongoing business performance. Don't let these non-recurring items distort your view of the core business's health.
59. EBIT
Earnings before interest and taxes—another view of operational profit. Why does this matter? Like EBITDA's younger sibling, it shows operational performance but keeps depreciation and amortization in the picture. It's useful for comparing companies with different debt levels.
60. Net Income to Common Stock
Profit available to common shareholders after preferred dividends. Why does this matter? This is what's actually available to ordinary shareholders—the real bottom line for most investors. It's the number that matters most for calculating the true EPS.
That's it for today.
Next week we'll explore more to help you make better investment decisions.
What I did
I chilled a lot with my wife to enjoy some quality time.
Dug deeper into the RTOS topic :-)
I'm usually quiet about my portfolio, but I’m sharing my latest addition.
Here's the thing with BP: I've developed an almost zen-like attitude to owning its share. When the price dips and the value looks good to me, I simply add more shares. My focus here is the dividend yield. When the price rises, I sit back and wait, knowing another opportunity will come around.
Why BP? It's super simple. Energy isn't just another sector – it's the lifeblood of our modern world. No matter how much the world changes, we'll always need energy. And BP isn't just any energy company – they've proven themselves to be a reliable partner to their shareholders, consistently paying dividends through thick and thin.
My strategy with BP isn't about timing the market perfectly. It's about recognizing value when I see it and gradually building my position over time. Some might call it boring, but I call it forget it and sleep well at night.Sometimes the best investments are the ones that just make sense, year after year.
What's On My Mind
Looking forward to the new year :-)
Nuggets
I’m a big green chicken fan. If you are into energy, these guys are for you -
.Take care,
Michael
Hit the heart if this year will your year :-D
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
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